Deducing Future of the Mortgage Deduction

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WE’RE HEARING that in forging the fiscal cliff deal that the House and Senate passed last Tuesday, Congress left the mortgage interest deduction vulnerable.

That’s because it took its first shot at limiting the amount of itemized tax deductions households can take.

It is a small cut that might force a family with adjusted gross income (AGI) above $350,000 to pay an extra $500 in taxes in 2013.

But Capitol Hill observers don’t think it will be the last attempt to reduce total itemized deductions—and that in the coming months, Republicans and Democrats are going to clash over spending cuts and revenue increases repeatedly.

And concessions and compromises will be made to raise the debt ceiling in February and to pass a continuing resolution to fund government operations after March.

Currently, 33 million households claim the MID and it costs the U.S. Treasury about $108 billion a year. Two-thirds of those dollars go to households that make less than $200,000.
In the bill just passed, the AGI threshold for being clipped on itemized deductions is $300,000 for married households and $250,000 for a single household.

So the fiscal cliff bill (H.R. 8) that President Obama signed may not impact many middle-class homeowners.

But the cut in itemized deductions will have a slight impact on higher tax bracket taxpayers that live in high-cost areas and make generous donations to charities.

Two-thirds of charitable donations are made by households that make more than $200,000, according to a tax expert at the National Association of Home Builders.  

NAHB assistant vice president for tax policy Robert Dietz views the negotiations over the fiscal cliff as a precursor for what to expect in the coming months. The political message is clear. “There continues to be an appetite to examine and maybe limit itemized deductions.  For the housing industry that means the MID.”

Meanwhile, the housing market is recovering and it has become a source of economic growth and job creation. This might not be the best time to reduce the mortgage interest deduction.  

“It is not just going to be a tax hike on homebuyers and existing homeowners,” Dietz said. “It will cause prices to fall.”

THE E-SIGNER-IN-CHIEF: Several of our sources are pointing to President Obama’s remote signing of the fiscal cliff legislation as a harbinger of increased acceptance of e-mortgages.

Tim Anderson, director of e-services at Doc Magic, claimed, “Now if that doesn’t send a strong signal for adoption I don’t know what else will!!!” Note the three exclamation points from perhaps the biggest champion of the e-signature and the e-mortgage there is.

And Cris Gross, head of media relations for National Credit-reporting System, gave a similar opinion: “As e-signing technology moves into the spotlight this week with President Obama's long-distance signing of the recently passed bill, the lending industry is on the verge of a new era of electronic signing. On Monday, conventional loan origination can be done entirely online, with the IRS acceptance of e-signatures on its 4506-T tax transcript request forms—the last document in the process that had required on-paper signatures.”

Since we have been covering this story since the late 1990s at National Mortgage News, we have to say, “It’s about time!” (One exclamation point.)

DATA DROP: Gangbusters is the welcome word you can use for jumbo mortgage lending in the third quarter of 2012.

We’re reporting that the top 20 in this niche saw volumes jump 73.4% versus the third quarter of 2011, going from $20.3 billion to $33.2 billion.

We earlier reported volumes at the top three, Wells, Bank of America and PHH Mortgage, but here’s two interesting stats—both B of A and PHH DOUBLED their volumes.

Jumbo and other nonconforming loans have been in the dumpster ever since the mortgage collapse, so this is a sign that a viable non-guvvy mortgage business could be rising again.

Much of this is portfolio lending since there have been very few jumbo MBS besides those issued by Redwood Trust.

But that would make sense since jumbos have a higher return than conventionals so should be more profitable to hold on to.
EXPANDING YOUR MORTGAGE MENU: Here’s one for the 2012 mortgage reel: we were reading along very interestedly in a post at www.mortgagegrapevine.com about downpayment assistance, when we came to the part in the thread about “edible investors.” Gives a new meaning to what’s on your mortgage menu, doesn’t it? Here’s the link: http://bit.ly/VTTsNI

FREE STUFF: The folks at QuestSoft liked our review of their Compliance Christmas parody production so much that they’d like to offer it free to all of our readers. We’ve done song parodies for the New York Financial Writers’ annual Financial Follies, and believe us, folks, it’s harder to do than it looks. This is high-quality writing and the singing is done, in period costumes, by a real caroling society. You’ll enjoy this DVD/CD package and the price is right (free). Order here before the 12 days of Christmas run out! (That would be Sunday.)

WAY TO GO! We will get out of this turgid economic recovery one net new job at a time. Here’s a company that has added 77 jobs during 2012. Inlanta Mortgage gets our Way to Go! shout out this week. Click on the company name for the details, and keep us informed. Remember, you can get your company name in this space if you hire more than 10 net new positions.

FINAL THOUGHT: “No man’s life, liberty or property is safe while the legislature is in session.” — Mark Twain

Mark Fogarty is editorial director of the SourceMedia Mortgage Group and has been commenting on the mortgage market since 1984. Brian Collins is the group’s senior editor and D.C. bureau chief. He has worked the mortgage beat since 1988.

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